Yanis Varoukis discusses Ponzi Austerity ( Greece in focus ) .... While the EU and Greece Coalition Government play Troikan games over and over again , the Greek people suffer the realities of actual austerity - families kiss their children good bye as they cannot feed them.....Businesses continue to flee Greece ...... Deflation hits levels no seen in fifty years - how much will the Greek people take before revolting is the question unknown at present !

http://www.nakedcapitalism.com/2013/11/yanis-varoufakis-ponzi-austerity-a-definition-and-an-example.html

SATURDAY, NOVEMBER 9, 2013

Yanis Varoufakis: Ponzi Austerity – A Definition and an Example

By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his blog

For a while now I have been arguing that Europe’s policies for reducing the public debts of fiscally stressed member-states can be described as a Ponzi austerity scheme. In this post I attempt precisely to define ‘Ponzi austerity’.

Ponzi Growth

Standard Ponzi schemes are based on a sleight of hand that creates the appearance of a fund whose value grows faster than the value that has come into it. In reality the opposite is true, as the scheme’s operator usually helps himself to some of the incoming capital while the scheme is not managing to create new capital with which to replenish these ‘leakages’, let alone pay the returns it promises. The appearances of growth that does not really exist is, of course, the lure that brings into the scheme new participants whose capital is utilised by the Ponzi scheme’s operator to maintain the facade of genuine growth.

Ponzi Austerity

Ponzi austerity is the inverse of Ponzi growth. Whereas in standard Ponzi (growth) schemes the lure is the promise of a growing fund, in the case of Ponzi austerity the attraction to bankrupted participants is the promise of reducing their debt, so as to liberate them from insolvency, through a combination of ‘belt tightening’, austerity measures and new loans that provide the bankrupt with necessary funds for repaying maturing debts (e.g. bonds). As it is impossible to escape insolvency in this manner, Ponzi austerity schemes, just like Ponzi growth schemes, necessitate a constant influx of new capital to support the illusion that bankruptcy has been averted. But to attract this capital, the Ponzi austerity’s operators must do their utmost to maintain the façade of genuine debt reduction.

Ponzi Austerity’s Inventor: The Eurozone’s Great and Good

Ponzi growth has been around for yonks. But it took the collective wisdom of Europe’s great and good to create the first Ponzi austerity scheme. The Greek, Portuguese, Irish, Spanish and Cypriot loan agreements were the first ever examples of such a scheme. Bankrupted states, in a death embrace with bankrupted banking sectors, were forced to take in ever-increasing capital inflows (from the IMF, from the ECB, from the EFSF-ESM, shortly under the ECB’s OMT threat) on condition of belt-tightening austerity. As the scheme progresses, more capital is coming into it, debt-to-GDP ratios actually grow (just as in Ponzi growth schemes the value of the total fund is depleted) and, therefore, even more outside capital has to be brought in in order to maintain the pretense.

Ponzi Austerity’s Worst Example (*)

It is Spring 2012. The Greek government had collapsed under popular anger at the nation’s sad state and a new election is due in May. A left-wing party that advocates rescinding the bailout agreement was rising fast in the polls and the troika suspended the disbursement of loan tranches to Greece in response. Unnoticed by almost everyone, this episode represented a sinister moment when the EU asserted the right of its executive to intervene directly in the democratic process of a member-state. Unelected officials in Brussels concocted a ‘right’ to suspend unilaterally an international and intra-European loan agreement, on the basis of their assessment of which political party was and which was not ‘acceptable’ to form government in a member-state.

The caretaker Greek government was left with no alternative than to suspend its own payments to Greek institutions and individuals. Hospitals, schools, wages, pensions all diminished fast. But the concern of the great and the good was about Greece’s debt to our… ECB. You see, a year before, in an ill-fated attempt to shore up Greek government bonds, the ECB had purchased a bunch of them, at low, low prices. The ploy failed, as did Greece. Regardless, the ECB held these bonds and they started maturing. Had they not been purchased by the ECB in 2010, they would have been haircut together with the rest of the bonds in private hands a few months earlier, in early 2012. But no, the ECB cannot accept write-downs from member-states because it is against its charter which prohibits it from financing member-states. So, the caretaker Greek government, while putting Greece’s social economy through the wringer, had to find €5 billion in a few days to repay the ECB for one of these maturing bonds. But remember: the troika was not lending it any more and nor was anyone else.

The obvious thing to do, under the circumstances, would be for Athens to default on the bonds that the ECB owned. But this was something that Frankfurt and Berlin considered unacceptable. The Greek state could default against Greek and non-Greek citizens, pension funds, banks even but its debts to the ECB were sacrosanct. They had to be paid come what may. But how? This is what they came up with in lieu of a ‘solution’: The ECB allowed the Greek government to issue worthless IOUs (or, more precisely, short-term treasury bills), that no private investor would touch, and pass them on to the insolvent Greek banks. The insolvent Greek banks then handed over these IOUs to the European System of Central Banks (through the so called ELA program of the ECB) as collateral in exchange for loans that the banks then gave back to the Greek government so that Athens could repay… the ECB. If this sounds like a Ponzi scheme it is because it is the mother of all Ponzi schemes. A merry go around of Ponzi Austerity which, interestingly, left both the insolvent banks and the insolvent Greek state a little more… insolvent while, all along, the population was sinking into deeper and deeper despair. And all that so that the EU could pretend that its idiotic rules had been respected.

This is but one example of the vicious cycle of Ponzi Austerity that is being replicated incessantly throughout the Eurozone. Its stated purpose is to reduce debts. But debt is rising everywhere. Is this a failure? Yes and no. It is a failure in terms of the EU’s stated objectives but not in terms of the underlying ones. For, in reality, the true purpose of the ‘bailout’ loans was to effect a cynical transfer of the Periphery’s bad debts from the books (mainly) of the Northern European banks to the shoulders (mainly) of Northern Europe’s taxpayers. Sadly, this cynical transfer, effected in the name of European ‘solidarity’, led to a death dance of insolvent banks and bankrupt states – sad couples that were sequentially marched off the cliff of competitive austerity – with the awful result that large sections of proud European nations were dragged into the contemporary equivalent of the Victorian Poorhouse.

________

(*) This example comes from my recent talk entitled The Dirty War for Europe’s Integrity and Soul

HuffPost: “Mommy, take us home and we will never ask for food again”

Posted by keeptalkinggreece in Uncategorized

The dire situation of Greek families facing economic hardship crossed the big ocean and reached the United States. In an article with heartbreaking examples, The Huffington Post highlights the plight of many families who cannot feed their children, the malnutrition spreading among elementary and high-school children and the many civic initiatives to give a helping hand and a warm meal to the thousands in need.

Mommy, I Promise We Will Never Be Hungry Again!

“Mommy, take us home and we will never ask for food again!” With this heartbreaking cry, a girl residing at a nursery in the Kallithea area of Athens tugs on her mother’s skirt and begs her to take her and her two siblings back home. The mother, visiting to cuddle and play with her children at the nursery that is providing them with food and shelter, runs away crying as she can not afford to take her children with her.
“But, sweetheart, we have nothing to eat at home,” she replies. Undaunted, the child continues with a seriousness way beyond her years, “Mommy, take us home and we will never be hungry again, I promise you!”
This story, along with many other similar tales of destitute families unable to feed and clothe their children, has become so common in Greece that UNICEF reports an unbelievable 600,000 of the country’s young are malnourished and living below the poverty line.
es, the phenomenon of malnutrition has become a reality in Greece ever since the beginning of the debt crisis in 2010, forcing a growing number of organizations and individuals into a daily fight to feed the hungry. For, hanging from most public garbage cans around Athens, one can find neatly packed bags full of cooked food waiting to be picked up. Almost like a secret code among the public, it is understood that these rations have been placed there for their needy co-citizens.
In dozens of Athenian suburbs, such as Keratsini, Tambouria, Agia Varvara, Peristeri and Ano Liosia to name but a few, but also in Western Thessaloniki and in Crete, there are ever-increasing incidents of starved students fainting in class. This has led to a rush by the myriad of Parents’ Associations in the country, in the face of an absentee government, to provide assistance to the families in dire economic straits. (Read full article here)

Ledra Marriott Group gives up Athens hotel

Posted by keeptalkinggreece in Tourism

With a simple notice on its website, international hotel chain Ledra Marriot announced that it will not operate its hotel in Athens as of the end of the year. After 30 years with presence in Athens, the Hotel will not operate under Marriot anymore.
“Please be advised that as of December, 31st 2013 the hotel will no longer operate as a Marriott.” (marriott.com)
According to daily Kathimerini, the company that owns the hotel , the Paraskevaides group, and the international hotel chain did not come to an agreement to renew the management module contract that expires at the end of the year. the Marriott has operating the management of the hotel.
Sources told Kathimerini, that “the company owner will seek new cooperation for the management of the unit, while the Marriott reportedly retains its interest in the Athenian destination.”
Ledra Marriot international announced also that it will not accept bookings for its Athens hotel as of 1.1.2014.

Government to shift focus back to troika talks Government officials hope to press on with tough negotiations with troika envoys in a bid to secure further crucial rescue funding after a vote of no confidence in Parliament set for Sunday. The aim of the government is to complete talks with foreign envoys on the “prior actions” necessary for the release of the next tranche of rescue funding – a sum of 1 billion euros – before a scheduled summit of eurozone finance ministers on Thursday. The key outstanding issues include an overhaul of the civil service – including the induction of thousands of public sector employees into a scheme of forced transfers and layoffs – and the restructuring of the Hellenic Defense Systems (EAS). The two sides must also resolve a dispute regarding the size of Greece’s fiscal gap for next year. Athens insists that it is no more than 700 million euros while the troika puts its above 2 billion euros, which has fuelled fears about demands for new across-the-board cuts to salaries and pensions. Greek officials have insisted that such “horizontal cuts” are out of the question and have suggested that adequate revenue could be raised from a more efficient crackdown on evasion of tax and social security contributions. Another tough task the government must complete as part of its commitments to foreign creditors is the drafting of a new “unified” property tax which combines several levies including one that is currently collected via homeowners’ electricity bills. The first draft angered many coalition MPs as it outlined an increase of taxes on city properties as well as a tax on farmland. According to sources, officials hope to submit a new revised draft this week or by next week at the latest. The final budget for 2014 is to be submitted in Parliament on November 21 and government officials hope to have overcome any serious differences with the troika before then. Alternate Finance Minister Christos Staikouras sought to strike an upbeat tone in a speech in Parliament on Saturday, predicting that Greece would return to the international bond markets in 2014. Staikouras emphasized that Greece, which is on target to post a primary surplus for this year, would seek a reduction to its debt burden which remains unsustainable. “We will seek from our partners their active support for lightening the Greek debt and our desire is for this to happen as soon as possible and subject to clear terms,” he said. Staikouras was addressing Parliament on the second day of a debate on a censure motion brought by leftist SYRIZA against the government, a move which he said was indicative of the main leftist opposition’s “identity crisis.” SYRIZA submitted the censure motion last Thursday, after a police raid on the occupied headquarters of ERT last Thursday, claiming that Samaras’s coalition was “denigrating” democracy and lacked a popular mandate for its austerity policies.

ekathimerini.com , Saturday November 9, 2013 (17:09)  Biggest deflation in half a century  Major drop in demand and in imports signalled a 2 percent annual shrinking of prices in October By Dimitra Manifava The Greek consumer price index (CPI) posted its biggest decline, by 2 percent, last month on a yearly basis since February 1962, when deflation amounted to 2.1 percent, according to official data released on Friday by the Hellenic Statistical Authority (ELSTAT). This has been the only year since 1959 during which inflation has been negative for eight consecutive months. The phenomenon does not of course signal the strengthening of competition in Greece to the extent that prices are going down. Rather, it constitutes yet more proof that the Greek recession is ongoing. Prices are falling, even though they are not in harmony with the reduction in salaries and pensions, because demand has been limited and imports have been reduced. Compared to September 2013 the CPI has declined by 0.1 percent, with the drop contained by the increase in consumer participation in the retail price of pharmaceutical products. Drug prices went up by 17.6 percent within one month. The only group of products that has seen an increase compared to last year is alcoholic beverages and tobacco, by 3.5 percent, mostly due to the rise in the price of cigarettes. There are certain products in other categories that have shown a rising trend in their prices but they constitute a minority in the so-called product basket. Food and non-alcoholic drinks posted an annual drop of 0.5 percent, mostly due to the drop in the cost of meat, fish, vegetables, cereals, refreshments, fruit juice and sweets. Part of the decline was offset by the price hike in dairy products and eggs (1.7 percent), fruit (4.1 percent) and potatoes (11.2 percent). There was also a notable fall in apparel by 1.1 percent, a group of commodities that had hitherto appeared to be inflexible. Housing showed a 0.7 percent decline in rental rates and maintenance costs, though part of the decline was offset by the increase in electricity rates. The group with the biggest decline, of 4.8 percent, was that of “other goods and services” thanks to the drop in the prices charged by hairdressers and barbers, the cost of personal hygiene items and in transport insurance premiums. ekathimerini.com , Friday November 8, 2013 (21:54)